1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Chad Hart
Associate Professor 1

2. Why Should you have a Marketing Plan?
Detached from the decision
Proper perspective
Introduces discipline and consistency
Check your logic
What if…

3. Fear, Greed, and Ego Fear of making a bad decision
-- Watching prices slip away as you wait
-- Watching prices rise after you’ve sold
Greed of expecting even higher prices
-- Not taking advantage of good price opportunities
Ego of wanting to claim you caught the market high
-- “Lake Wobegon” marketing

4. Ego
Greed
Fear

5. What is a Marketing Plan?
A marketing plan is an outline of price, date, and quantity objectives used to generate a reasonable return given the existing market conditions.

6. 8-Step Marketing Plan Describe your current operation Specify goals
Know your costs of production and break-even
Utilize sound market information
Set target prices
Evaluate pricing alternatives and actions
Cash, futures/options, forward contract
Execute when target prices are hit
Review and evaluate results

7. 1.Describe your current operation…
Annual marketing's: number, weight, timing of sales
Input purchases: feeders, feed needs, crop inputs
Cost of production: cash and total costs
Alternative market outlets: distance, transportation costs
Marketing philosophy: sell on tight schedule, shop for best price, standing order
Attitude toward price risk and knowledge of risk management tools
Where are you going?

8. 2.Specify goals… Manage risk and protect profit potential
Goals should be achievable and measurable
If and when consistently met – revise upward
Examples:
Selling price 5% higher than the auction or plant average
Sell in top 1/3 of price range
Cover total costs plus growth requirements
Cover cash requirements

9. 3.Know your costs of production and break-even…
Production history and expectations
Incorporate input quantities and prices
Project costs on per unit sold
Variable $/unit
Total $/unit
Budgeting tools available

10. 3.Know your costs of production and break-even…
Project a break-even level
Price to cover variable costs
Price to cover fixed costs
Price to cover profit and growth
Sensitivity analysis for key variables
Back calculate from revenue to what you can afford to pay for feeder animals

11. 4.Utilize sound market information…
Factors that impact price
Supply
Demand
Demand and supply balance
Systematic price variations
Trends
Cyclical movements (cattle cycle, hog cycle, etc.)
Seasonal price patterns

12. 4.Utilize sound market information…
Market information and projections
USDA reports (weekly, monthly, annual)
Extension forecast/outlook reports
Commodity organizations
Newsletters
Private marketing firms

13. 5.Set target prices…
Set target prices based on actual or accurately estimated production costs
Know what the market is paying (or expected to pay)
The level and timing of target prices based on:
Market outlook information
Cost of production figures
Cash flow needs
Advantageous to set several target prices
Allows for changing market trends

14. 6.Evaluate pricing alternatives and actions…

15. 6.Evaluate pricing alternatives and actions…
Method
Advantages
Disadvantages
Cash sales
Easy to transact
Immediate payment
No set quantity
Minimize risk
No price protection
Less flexible
Forward contract
Easy to understand
Flexible quantity
Locked-in price
Must deliver in full
Opportunity loss if prices rise
Futures contract
Easy to enter/exit
Often better prices than forward contracts
Commission cost
Performance bond calls
Set quantities
Options contract
Price protection
Benefit if prices rise
Premium cost

16. 7.Execute when target prices are hit…
Price Target
Futures Price 1
50.72 2
76.24 3
79.19 4
82.14 5
86.19 6
90.25 7
94.30

17. 8.Review and evaluate results…
Check performance relative to marketing goals
Biggest reason for failure to repeatedly use marketing plans is that performance is compared to what might have been
Typically the highest price alternative
Probably an unrealistic goal
No one strategy is best all the time
Are conditions changing?

24. What Makes a Marketing Plan Work?
Know your market positions
Track all positions – where do you stand on % sold and average price?
Make the plan manageable
Don’t expect to achieve your highest targets
Focus on only tools you feel comfortable using
Set price targets that are realistic
Use multiple sources of analysis

25. A Little Marketing Philosophy
Bad outcomes still happen…
Never compare to the market high…
Remember it’s your plan for your operation…

26. Class web site:
Classes/econ337/Spring2017/index.htm